President Donald Trump issued a memorandum in August allowing private employers to defer the collection of payroll taxes. As of September 9, 2020, it has been confirmed that federal employees will have their payment of payroll taxes deferred, and are forbidden from opting out of this order.
There are a few things feds need to know about this. First, foremost, and by far the most important: you will still pay your payroll taxes. Ordinarily, these payroll taxes would be automatically deducted from your paycheck before you received it. In this case, your paycheck will appear larger when you receive it, because this automatic deduction will not have occurred.
The deferral is automatic and will occur for payroll taxes September through December, 2020. In 2021, you will have to pay the same amount that would have been deducted normally. We strongly recommend that feds ascertain how much they normally have deducted in payroll taxes, including federal income, Social Security, Medicare, and federal unemployment, and set aside money to ensure they are able to pay the lump sum when the payroll tax deferral ends and the taxes come due. This is especially critical if you have a security clearance – failure to pay your taxes can be dangerous for your ability to acquire or maintain a security clearance. Another issue with this deferral is that Medicare and Social Security are funded through payroll taxes. This creates serious uncertainty for both programs.
FMA’s position on this issue is that feds deserve to be allowed to choose whether to accept the payroll tax deferral or not. The lack of choice on this issue, and refusal to allow feds to choose how they want to pay their payroll taxes, hurts feds rather than helping them. The uncertainty inherent in this deferral, with no public plan for how these taxes will be collected or whether they will be collected in a lump sum or spread out over 2021, further hurts feds rather than helping. The Defense Finance and Accounting Service plans to recoup the deferred payment early next year.
We urge the administration to reconsider forcing this deferral on feds, and to allow feds to choose for themselves whether they want to take part in this deferral or not. FMA has worked with Senator Chris Van Hollen (D-MD), who is spearheading a congressional effort to urge the administration to reverse course and allow feds to opt out of the plan. In a letter to the Office of Management and Budget, Van Hollen and 24 other Senators pushed for flexibility and an opportunity to opt out. Members of the House of Representatives urged that the program be “opt-in.”
Regrettably, despite these efforts, paychecks with deferred payroll taxes are expected to be sent out this week.